Infosys Q4: 10 reasons why shares fell 22%

Infosys shares plunged as much as 22 per cent on Friday after India's second biggest IT outsourcer reported fourth quarter earnings and sales outlook for fiscal 2013-14. The sharp selloff in Infosys shares sent the 30-share BSE Sensex down by over 300 points. Other frontline IT stocks, including Tata Consultancy Services and Wipro, also traded sharply lower.

Here are 10 reasons why Infosys shares fell sharply:

Muted guidance: The biggest disappointment was the full year dollar sales outlook for 2013-14. The company said it expects dollar revenue for FY14 to grow between 6 per cent and 10 per cent. Most analysts had estimated that Infosys would set a target for revenue growth of as much as 12 per cent.

Local weakness: Infosys guidance for 2013-14 is lower than what industry body Nasscom forecast for the entire industry. Nasscom expects India's IT industry to grow at 12-14 per cent in the current fiscal year. K.K. Mital, CEO for portfolio management services at Globe Capital, said Infosys' guidance appears to be a company-specific problem. Even mid-cap companies are expected to perform better than this.

Guidance miss: For 2012-13, Infosys revenues grew by 5.8 per cent against a forecast of 6.5 per cent growth. Infosys CEO S.D.Shibul said the miss was on account of slower deal ramp-ups, pricing decline and adverse cross-currency impact.

Earnings guidance: Infosys has not put out earnings guidance for fiscal 2013-14. IT analyst Bhavin Shah said the absence of earnings guidance means the company is becoming flexible with pricing. It had earlier stopped giving out quarterly guidance citing global uncertainties.

Organic growth disappoints: Organic revenue growth was flat. Domestic brokerage IDFC said most of the incremental growth was driven by Lodestone, the Swiss consultancy which Infosys acquired last year.

Margins fall: Operating margins, a key measure of profitability, fell more than estimated at 23.55 per cent. A 200 basis point dip in margin was the real red flag, Mr Shah said.

Cautious commentary: The management continues to be cautious. Mr Shibulal said deal ramp-ups in the fourth quarter were softer than expected. The company expects billing rates and margins to be under pressure in the short term, Rajiv Bansal, the company's chief financial officer, said.

Pricing decline: Infosys said higher volumes growth (1.8 per cent sequentially) in Q4 did not results in higher profits because pricing declined by 0.7 per cent in the March quarter.

Discretionary spend: Infosys' dependency on discretionary spend is much more than the industry on an average. 33 per cent of Infosys' revenue comes from consulting and system integration which depends on discretionary spends. With no signs of an immediate pick up in discretionary spend, Infosys is unlikely to be an outperformer in the near term.